Regulation and competition concerns among financial services sector

UK financial services firms are optimistic despite profitability falling in the three months to June, a survey by the Confederation of British Industry (CBI) and consultancy firm PwC has revealed. However, concerns around the cost of regulation and competition within the market place remain.

The survey quizzed 98 firms in the sector and revealed that business volumes rose across many sub-sectors in the second quarter. However, after six quarters of robust increases, profitability at firms fell unexpectedly. This has been linked to increasing costs and pricing powers being put under pressure.

Matthew Fell, CBI director for competitive markets, said, “Despite a surprise fall in profitability, financial services firms are upbeat about their prospects, with business volumes rising across most sectors.

“Firms are focusing on two key strategies for growth in the near-term: finding ways to retain existing customers, by offering them more products and services, and investing in marketing, sales and distribution to attract new customers.”

Fell continued that the sector still faces a number of “significant challenges”, with the impact of regulation being highlighted. Firms have also recognised this, with two thirds saying dealing with statutory legislation and regulation was a main factor driving investment and 70% saying it is likely to constrain business over the next year.

Despite this, firms predicted growth in profitability in the next quarter, with 44% expecting business volumes to increase further, compared to the 7% that anticipate a fall.

Kevin Burrowes, financial services leader at PwC, commented, “The financial services industry is benefitting from the effects of the economic recovery, but that is proving a double-edged sword for some. The prospect of growing volumes and revenues is tempered by concerns about competition.

“Banks and insurers see a growing competitive threat from non-financial services companies and new entrants are also trying to capitalise on the improved conditions.”

Photo: Davis Staedtler via Flickr 

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